Acquisitions

9 Months Ended

Sep. 30, 2022

Acquisitions

Acquisitions

3. Acquisitions

Joule Processing LLC

On January 14, 2022, the Company acquired Joule Processing LLC (“Joule”), an engineered modular equipment, process design and procurement company founded in 2009.

The fair value of consideration paid by the Company in connection with the Joule acquisition was as follows (in thousands):

Cash	$	28,140
Contingent consideration		41,732
Total consideration	$	69,872

The contingent consideration represents the estimated fair value associated with earn-out payments of  up to $130 million that the sellers are eligible to receive in cash or shares of the Company’s common stock (at the Company’s election). Of the total earnout consideration, $90 million is related to the achievement of certain financial performance and $40 million is related to the achievement of certain internal operational milestones.

The following table summarizes the preliminary allocation of the purchase price to the estimated fair value of the net assets acquired, excluding goodwill (in thousands):

Current assets	$	2,672
Property, plant and equipment		493
Right of use asset		182
Identifiable intangible assets		60,522
Lease liability		(374)
Current liabilities		(2,612)
Contract liability		(3,818)
Total net assets acquired, excluding goodwill	$	57,065

The preliminary allocation of the purchase price is still considered provisional due to the finalization of the valuation for the assets acquired and liabilities assumed in relation to the Joule acquisition. Therefore, the fair values of the assets acquired and liabilities assumed are subject to change as we obtain additional information for valuation assumptions such as market demand for Joule product lines to support forecasted revenue growth and the likelihood of

achieving earnout milestones during the measurement period, which will not exceed 12 months from the date of acquisition. During the three and nine months ended September 30, 2022, the Company recorded an adjustment to goodwill of $0 and $0.1 million, respectively, due to the payment of a hold back liability related to the Joule acquisition, which was recorded in accrued expenses in the unaudited interim condensed consolidated balance sheet.

The fair value of the developed technology totaling $59.2 million included in the identifiable intangible assets was calculated using the multi-period excess earnings method (“MPEEM”) approach which is a variant of the income approach. The basic principle of the MPEEM approach is that a single asset, in isolation, is not capable of generating cash flow for an enterprise. Several assets are brought together and exploited to generate cash flow. Therefore, to determine cash flow from the developed technology over its useful life of 15 years, one must deduct the related expenses incurred for the exploitation of other assets used for the generation of overall cash flow. The fair value of the tradename totaling $0.8 million was calculated using the relief from royalty approach which is a variant of the income approach, and was assigned a useful life of four years. The fair value of the non-compete agreements was $0.5 million with a useful life of six years.

In addition to identifiable intangible assets, the fair value of acquired work in process and finished goods inventory, included in inventory, was estimated based on the estimated selling price less costs to be incurred and a market participant profit rate.

In connection with the acquisition, the Company recorded on its consolidated balance sheet a liability of $41.7 million representing the fair value of contingent consideration payable, and is recorded in the unaudited interim condensed consolidated balance sheet in the loss accrual for service contracts and other liabilities. The fair value of this contingent consideration was $36.9 million as of September 30, 2022, and as a result $0 and $4.8 million reduction was recorded in the unaudited interim condensed consolidated statement of operations for the three and nine months ended September 30, 2022.

Included in the purchase price consideration are contingent earn-out payments as described above. Due to the nature of the earn-outs, a scenario based analysis using the probability of achieving the milestone expectations was used to determine the fair value of the contingent consideration. These fair value measurements were based on unobservable inputs and are considered to be level 3 financial instruments.

The goodwill was primarily attributed to the value of synergies created with the Company’s current and future offerings and the value of the assembled workforce. Goodwill and intangible assets are not deductible for income tax purposes. Goodwill associated with the Joule acquisition was calculated as follows (in thousands):

Consideration paid	$	28,140
Contingent consideration		41,732
Less: net assets acquired		(57,065)
Total goodwill recognized	$	12,807

The acquisition of Joule contributed $0.6 million and $3.9 million to total consolidated revenue for the three and nine months ended September 30, 2022, respectively. The Company determined it impractical to report net loss for the Joule acquisition for the three and nine months ended September 30, 2022.

Applied Cryo Technologies Acquisition

On November 22, 2021, the Company acquired 100% of the outstanding shares of Applied Cryo Technologies, Inc. (“Applied Cryo”). Applied Cryo is a manufacturer of engineered equipment servicing multiple applications, including cryogenic trailers and mobile storage equipment for the oil and gas markets and equipment for the distribution of liquified hydrogen, oxygen, argon, nitrogen, and other cryogenic gases.

The fair value of consideration paid by the Company in connection with the Applied Cryo acquisition was as follows (in thousands):

Cash	$	98,559
Plug Power Inc. Common Stock		46,697
Contingent consideration		14,000
Settlement of preexisting relationship		2,837
Total consideration	$	162,093

Included in the $98.6 million of cash consideration above, $5.0 million is consideration held by our paying agent in connection with the acquisition and is reported as restricted cash, with a corresponding accrued liability as of September 30, 2022 on the Company’s unaudited interim condensed consolidated balance sheet. We expect that this will be settled in 2022.

The contingent consideration represents the estimated fair value associated with earn-out payments of  up to $30.0 million that the sellers are eligible to receive in cash or shares of the Company’s common stock (at the Company’s election). Of the total earnout consideration, $15.0 million is related to financial performance, and $15.0 million is related to internal operational milestones.

The following table summarizes the preliminary allocation of the purchase price to the estimated fair value of the net assets acquired, excluding goodwill (in thousands):

Cash	$	1,180
Accounts receivable		4,123
Inventory		24,655
Prepaid expenses and other assets		1,506
Property, plant and equipment		4,515
Right of use asset		2,788
Identifiable intangible assets		70,484
Lease liability		(2,672)
Accounts payable, accrued expenses and other liabilities		(7,683)
Deferred tax liability		(16,541)
Deferred revenue		(12,990)
Total net assets acquired, excluding goodwill	$	69,365

The preliminary allocation of the purchase price is still considered provisional due to the tradename, technology, and customer relationship valuations. The Company continues to evaluate valuation assumptions such as the market demand for the Applied Cryo existing product lines to support forecasted revenue growth. Additionally, the Company continues to research the technology and buying power of Applied Cryo and evaluate the likelihood of achieving the additional production capacity needed in time to meet earnout milestones. During the three and nine months ended September 30, 2022, the Company recorded a measurement period adjustment to goodwill of $0 and $0.5 million, respectively, due to a release of escrow, which was recorded to accrued expenses in the unaudited interim condensed consolidated balance sheet. Any necessary adjustments will be finalized within one year from the date of acquisition.

Identifiable intangible assets consisted of developed technology, tradename, acquired customer relationships, non-compete agreements and backlog. The fair value of the developed technology totaling $26.3 million was calculated using the relief from royalty approach which is a variant of the income approach. The application of the relief from royalty approach involves estimating the value of an intangible asset by quantifying the present value of the stream of market derived royalty payments that the owner of the intangible asset is exempted or ‘relieved’ from paying. The developed technology has a useful life of 15 years. The fair value of the tradename totaling $13.7 million was calculated using the relief from royalty approach with a useful life of 15 years. The fair value of the acquired customer relationships totaling $26.6 million was calculated using the MPEEM approach and has a useful life of 15 years. The fair value of the acquired

customer relationships was estimated by discounting the net cash flow derived from the expected revenues attributable to the acquired customer relationships. The fair value of the non-compete agreements was $1.0 million with a useful life of three years. The fair value of the customer backlog was $2.9 million with a useful life of one year.

In addition to identifiable intangible assets, the fair value of acquired work in process and finished goods inventory, included in inventory, was estimated based on the estimated selling price less costs to be incurred and a market participant profit rate.

Included in the purchase price consideration are contingent earn-out payments described above. Due to the nature of the earn-outs, a scenario based analysis using the probability of achieving the milestone expectations was used to value these contingent payments. These fair value measurements were based on unobservable inputs and are considered to be level 3 financial instruments.

In connection with the acquisition, the Company recorded on its consolidated balance sheet a liability of $14.0 million representing the fair value of contingent consideration payable. The fair value of this contingent consideration was $13.7 million as of September 30, 2022, and reductions of $0 and $0.3 million were recorded in the unaudited interim condensed consolidated statement of operations for the three and nine months ended September 30, 2022, respectively.

Included in Applied Cryo’s total net assets acquired, excluding goodwill, were net deferred tax liabilities of $16.5 million. In connection with the acquisition of these net deferred tax liabilities, the Company reduced its valuation allowance by $16.5 million and recognized a tax benefit $16.5 million during the year ended December 31, 2021.

The goodwill was primarily attributed to the value of synergies created with the Company’s current and future offerings and the value of the assembled workforce. Goodwill and intangible assets are not deductible for income tax purposes. Goodwill associated with the Applied Cryo acquisition was calculated as follows (in thousands):

Consideration paid	$	162,093
Less: net assets acquired		(69,365)
Total goodwill recognized	$	92,728

The acquisition of Applied Cryo contributed $11.7 million and $44.7 million to total consolidated revenue for the three and nine months ended September 30, 2022, respectively. The Company determined it impractical to report net loss for the Applied Cryo acquisition for the three and nine months ended September 30, 2022.

Frames Holding B.V. Acquisition

On December 9, 2021, the Company acquired 100% of the outstanding shares of Frames Holding B.V. (“Frames”). Frames, a leading provider of turnkey hydrogen solutions.

The fair value of consideration paid by the Company in connection with the Frames acquisition was as follows (in thousands):

Cash	$	94,541
Contingent consideration		29,057
Settlement of preexisting relationship		4,263
Total consideration	$	127,861

The contingent consideration represents the estimated fair value associated with earn-out payments of up to €30.0 million that the sellers are eligible to receive in the form of cash.  The contingent consideration is related to the achievement of certain internal operational targets during the four years following the closing date and is payable in two equal installments.

The following table summarizes the preliminary allocation of the purchase price to the estimated fair value of the total net assets acquired, excluding goodwill (in thousands):

Cash	$	45,394
Accounts receivable		17,910
Inventory		34
Prepaid expenses and other assets		3,652
Property, plant and equipment		709
Right of use asset		1,937
Contract asset		9,960
Identifiable intangible assets		50,478
Lease liability		(1,937)
Contract liability		(22,737)
Accounts payable, accrued expenses and other liabilities		(18,465)
Deferred tax liability		(11,259)
Provision for loss contracts		(2,636)
Warranty provisions		(7,566)
Total net assets acquired, excluding goodwill	$	65,474

The preliminary allocation of the purchase price is still considered provisional due to outstanding customer valuation analysis. Identifiable intangible assets consisted of developed technology, tradename, acquired customer relationships, non-compete agreements and backlog. Any necessary adjustments will be finalized within one year from the date of acquisition. During the three and nine months ended September 30, 2022, the Company recorded a measurement period adjustment to goodwill of $0 and $7.2 million, respectively, due to the recording of the deferred tax treatment surrounding the tangible and intangible assets acquired.

The fair value of the developed technology totaling $5.3 million was calculated using the relief from royalty approach which is a variant of the income approach, and it has a useful life of eight years. The fair value of the tradename totaling $11.6 million was calculated using the relief from royalty approach, and it has a useful life of eight years. The fair value of the acquired customer relationships totaling $27.2 million was calculated using the MPEEM approach which is a variant of the income approach, and it has a useful life of 17 years. The fair value of the customer relationships was estimated by discounting the net cash flow derived from the expected revenues attributable to the acquired customer relationships. The fair value of the non-compete agreements totaling $4.9 million was calculated using the with and without income approach, and it has a useful life of approximately four years. The fair value of the backlog was $1.4 million, and it has a useful life of one year.

Included in the purchase price consideration are contingent earn-out payments described above. Due to the nature of the earn-outs, a scenario based analysis using the probability of achieving the milestone expectations was used to determine the fair value of the contingent consideration. These fair value measurements were based on unobservable inputs and are considered to be level 3 financial instruments.

In connection with the acquisition, the Company recorded on its consolidated balance sheet a liability of $29.1 million representing the fair value of contingent consideration payable. The fair value of this contingent consideration was $26.2 million as of September 30, 2022. The change in fair value compared to December 31, 2021 was due to a change in the foreign currency translation, partially offset by an increase in the liability. The Company recorded an adjustment of $0 and $1.1 million for the three and nine months ended September 30, 2022 in the unaudited interim condensed consolidated statement of operations.

Included in Frames’ total net assets acquired, excluding goodwill, are net deferred tax liabilities of $4.1 million.

The goodwill was primarily attributed to the value of synergies created with the Company’s current and future offerings and the value of the assembled workforce. Goodwill and intangible assets are not deductible for income tax purposes. Goodwill associated with the Frames acquisition was calculated as follows (in thousands):

Consideration paid	$	127,861
Less: net assets acquired		(65,474)
Total goodwill recognized	$	62,387

The above estimates are preliminary in nature and subject to adjustments. Any necessary adjustments will be finalized within one year from the date of acquisition. Substantially all the receivables acquired are expected to be collectable. Purchased goodwill is not expected to be deductible for tax purposes.

The acquisition of Frames contributed $25.4 million and $76.0 million to total consolidated revenue for the three and nine months ended September 30, 2022, respectively. The following table reflects the unaudited pro forma results of operations for the three and nine months ended September 30, 2021 assuming that the Frames acquisition had occurred on January 1, 2021 (in thousands):

	Three Months Ended		Nine Months Ended
	September 30, 2021		September 30, 2021
Revenue	$	159,304	$	387,623
Net loss	$	(105,294)	$	(264,640)

The unaudited pro forma net income for the three and nine months ended September 30, 2021 has been adjusted to reflect increased amortization of intangibles as if the acquisition had occurred on January 1, 2021. The unaudited pro forma information is presented for informational purposes only and is not necessarily indicative of the actual results that would have been achieved had the Frames acquisition occurred as of January 1, 2021 or indicative of the results that may be achieved in future periods.  

None of the Joule and Applied Cryo Technologies acquisition was material to our consolidated results of operations or financial position and, therefore, pro forma financial information is not presented.